EQB Inc Q4 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Meny Grauman - Scotia Capital Inc. - Analyst : You made changes to your equipment finance business. I'm wondering how that impacts the profitability of that business going forward, especially from a risk-adjusted basis.

Question: Meny Grauman - Scotia Capital Inc. - Analyst : Maybe as a follow-up, just wondering fundamental question is, why be in that business in the first place? And so if you can maybe address that why not just get out of this business and focus on your core business given the experience that you've seen here.

Question: Meny Grauman - Scotia Capital Inc. - Analyst : And does that commentary apply to the trucking sort of vertical as well? Or is that a special case that you might consider exiting?

Question: Gabriel Dechaine - National Bank Financial (Research) - Analyst : I think that's me. Yes, the debt repayment the holding company. Can you give me a sense of how much is left to repay, if any? And I believe that's related to historical acquisitions largely. And then more importantly, on a go-forward basis, what do you expect in terms of cost savings? And if you want to express that as a NIM uplift or whatever that would be perfectly fine.

Question: Gabriel Dechaine - National Bank Financial (Research) - Analyst : Okay. Your credit guidance there 12 basis points of loss in 2025. Is that -- I mean, I'm assuming that's going to be like a grading down from current level and maybe exit the year at your historical rate, that type of thing?

Question: Gabriel Dechaine - National Bank Financial (Research) - Analyst : Okay. And then I guess the choppy comment, this is a segue to my last question. I estimate like the that the long-haul trucking portfolio, there's about $350 million of it remaining on the book now in the performing category. Like, I assume at this point, you would have scrubbed the portfolio very diligently. You've got a really good handle on what's left that could become impaired and all that. And well maybe just illustrate or explain to me what the situation is with the -- what's left?

Question: Gabriel Dechaine - National Bank Financial (Research) - Analyst : Got it. And I have one more question. The prepayment commentary I found interesting because I'm just thinking given the duration of your average mortgage book, you might have weighted average of, I don't know, 2022 vintages maybe that are nearing maturity, and their mortgage rates are higher than what you're currently offering. So perhaps there's some really good visibility on prepayment income coming in the next couple of quarters. Is that plausible?

Question: Gabriel Dechaine - National Bank Financial (Research) - Analyst : Yes, the penalties are lower at this point.

Question: Paul Holden - CIBC World Markets Inc. - Analyst : First question I want to ask on the EQ Bank deposits. You definitely talked about improved outlook with lower rates, which makes sense to me, but it wasn't part of your updated financial objective. So just wondering if anything has changed there in terms of your growth rate expectations or what proportion of total funding, you'd like to see from EQ Bank deposits over time?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : And then second question I have for you. Maybe you could talk a little bit about the delinquency trends in single-family uninsured versus the provisions -- impaired provision. So deals have increased, provisions have increased a little bit, but not as much. So obviously, you're having a lot of, I think, success with workouts or at least a view that LTVs remain sufficiently low that these delinquent borrowers won't go impair. Maybe you can talk a little bit about post dynamics, how they're playing out in terms of the work out and why you have confidence that, that will continue.

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Okay. And then -- last one from me. Chadwick, you highlighted, you're expecting a 30% improvement in single-family. I assume that's uninsured mortgage originations and then maybe a little bit lower retention rates. Like how do we think about that translating to the loan growth sort of roughly?

Question: Paul Holden - CIBC World Markets Inc. - Analyst : Okay. So 30% improvement in originations might correspond to somewhere in that 8% to 12% loan growth range.

Question: Graham Ryding - TD Securities, Inc. - Analyst : Yes. Maybe I could just follow on from that last question. Is there like on your uninsured commercial and your uninsured single-family, is there a range of growth that you would be targeting next year for loan growth for those specific areas because that's where it's been a bit softer this year?

Question: Graham Ryding - TD Securities, Inc. - Analyst : Okay. Understood. And then on your -- on the commercial uninsured side, I think your margins were down 16% year-over-year. Is that a combination of you deliberately being selective in lending in this area, but also ensuring some of those mortgages and moving them off balance sheet?

Question: Graham Ryding - TD Securities, Inc. - Analyst : Okay. That's fair enough. It sounds like you're seeing some positive developments post quarter with your single-family impairments. I think Marlene just talked about sort of resolution starting to pick up. Anything on the commercial side or the equipment financing side post quarter that would give you some sort of near-term comfort and confidence that credit trends are starting to improve?

Question: Graham Ryding - TD Securities, Inc. - Analyst : Okay. Great. And one more, if I could. Just Chadwick, on the net interest margin, I think you're guiding for over 2% in 2025, you're at 2.07% this year. So there's some modest compression implied there. Could you maybe just give us some of the factors that are sort of implied behind that forecast?

Question: Etienne Ricard - BMO Capital Markets (Canada) - Analyst : The medium-term guidance provides for 15% ROE, and this includes fiscal '25. Yes, as we look into next year, it seems that PCLs could remain elevated in the first half. Loan growth pickup is more of a second half story and you invest to build brand value. So I'm curious to hear what gives you the confidence that '25 will prove to be a 15% ROE year despite a few headwinds for the foreseeable future.

Question: Etienne Ricard - BMO Capital Markets (Canada) - Analyst : And on the topic of capital allocation, I think your medium-term expectation is for 15% annual dividend growth down from 20% plus in recent years. I'm curious to hear how is your loan growth outlook influencing this decision. In other words, why retain more capital despite a macro environment in which consumer leverage is quite high and loan growth may prove more challenging?

Question: Stephen Boland - Raymond James Ltd. - Analyst : Can we just talk a little bit about the PCL, the carved-out one? I understand this is kind of like a different type of vehicle like this was some sort of facility. And I presume the vendor filled up the facility with the titles? Or I'm not sure like where does the title on these vehicles rest? Is it in the facility? Is it on your balance sheet? I'm just trying to get a little more detail because with the $16.1 million carve-out, like is this an assumption like a partial loss or a full loss that you may not have title on these vehicles. Because you mentioned this representation in the MD&A. So just if you could provide a little bit more detail on that.

Question: Stephen Boland - Raymond James Ltd. - Analyst : Sure. Okay. Yes, I won't dig in too much. I've got a couple of other questions on that. But -- and again, Chadwick, Andrew, I'm not sure who wants to take this. I mean, in the past on the stress test, and that came in, in 2021, you were very positive on that, saying that was going to be positive for retention for your borrowers and even borrowers that had basically graduated from their first mortgage with you. Now that that stress test has been essentially removed like what's your thoughts on retention because obviously, you're pretty bullish now on single-family again? So I'm just curious what your thoughts on retention going forward.

Question: Stephen Boland - Raymond James Ltd. - Analyst : And does your guidance factor in that, basically, it's going to go back to the way it was pre-stress test that you're matching a graduating borrower, you're going to match rate if they go to one of the Big 6 and get a prime rate. Is that the goal then to just retain and match rate?

Question: Stephen Boland - Raymond James Ltd. - Analyst : Okay. And last one for me. I'm not sure if I'm reading this a little bit too granular, like the 15% ROE guidance, does that assume some NCIB impact? Like it's mentioned in the same area in your guidance. So does that include that you're buying back shares at all in that ROE? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 05, 2024 / 3:30PM, EQB.TO - Q4 2024 EQB Inc Earnings Call

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : I'll pick up on that last line of questioning on the ROE. But I want to look at it in the context of the upper end of that range, that's 17%. Does that feel like it's something possible for the bank even with a CET1 ratio over 14%? Or does that include something -- some movements down towards the 13% range?

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. Then can you talk about the ranking of capital deployment opportunities and how buybacks fit into that? Obviously, a newer part of the EQ story and you guys have prioritized organic growth and growth via M&A most recently. So some thoughts on how that fits into your pecking order would be helpful.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : Okay. So building more capabilities may include M&A opportunities to come in again, buybacks would be below that just for crystal clarity.

Question: Lemar Persaud - Cormark Securities Inc. - Analyst : For sure. Okay. I appreciate that. And then just another question here. Just on this pride group exposure here, there's still $77 million net exposure. Sounds like you're convinced that future losses won't be material. We were talking about this last quarter and the thought then was that losses would be inconsequential. So I guess some color maybe from Marlene on what gives you the confidence that we're through the worst of losses in Q4?